An adviser is suing failed network Investments Ltd for over a million pounds in losses in a dispute about an investment the network said was too risky to offer clients.
Wiltshire-based advice firm Ian Gray & Associates has filed a case against Investments Ltd in a fight around whether or not a discretionary investment and pension service offered by the advice firm constituted an unregulated collective investment scheme.
Investments Ltd, now in liquidation and formerly part of the Standard Financial Group alongside sister advice network Financial Ltd, denies wrongdoing.
Ian Gray & Associates was an appointed representative of Investments Ltd between 2008 and 2010.
On legal advice, in late 2010 Investments told the adviser a discretionary service the firm offered had unknowingly created an unregulated collective investment scheme, and ordered the adviser to cease providing it, according to court documents.
The advice firm resigned from Investments in 2011 after launching legal action against the network for damages it argued were caused by Investments’ “sudden change of heart” on a scheme its compliance had previously passed.
Ian Gray & Associates is claiming £230,000 in expenditure was wasted and an income stream which could have amounted to £920,000 was lost when a number of clients left the firm as a result of the network’s actions.
According to the court documents, Ian Gray & Associates argue either Investments Ltd should not have permitted the advice firm to set up the service in the first place, as the network should have known what it was, or the network should not have stopped the adviser from running it.
Either way, lawyers for Ian Gray & Associates argue liability sits with the network, which was paid by the adviser to carry out compliance and put in place professional indemnity insurance.
In a hearing on 3 March, Judge Nicholas Le Poidevin sided with Investments in ruling the investment was not a CIS, meaning this part of the claim cannot be brought to the proceeding trial.
However, this decision is now being appealed by Ian Gray & Associates.
Under the agreement between Investments and Ian Gray & Associates - which court documents seen by FTAdviser name as a specialist in pensions advice - the advisers’ clients transferred their pension funds into a Sipp operated by registered pension scheme MYSIPP.
Clients’ cash was then pooled into a fund and transferred to broker firm Berkeley Futures for investment, which mainly used the money for trading derivatives.
The whole case hinges on whether the pooled investments qualified as a Sipp or a CIS.
Ian Gray & Associates are claiming a distinction between a Sipp and the assets a Sipp invests in, meaning the pensions exemption did not apply to the underlying pooled assets.
But Investments disputed this, and said the whole arrangement constituted a personal pension scheme and therefore was included in the pensions scheme exemption.
The judge ruled: “Pension schemes have to invest to provide pensions. If there is more than one participant in the pension scheme, there is necessarily a pooling of funds as a preliminary to investment.
“Hence in my judgment the investment arrangements are to be treated as forming part of the bespoke Sipp for the purpose of the pensions exemption. That is, the investment arrangements do not amount to or form part of a CIS.”
Speaking to FTAdviser, one of the directors of Gray & Associates Robert Gray said the firm had established a discretionary fund management service, which had been approved by Investments Ltd in June 2009.
“Over the following 15 months, we had six separate meetings with Investments Ltd personnel, several (if not all) of which were compliance meetings and visits.”
“It is our assertion that we lost clients as direct result of this decision. We also incurred substantial costs in the setting up, running and winding up the service.
“We contend that either Investments Ltd should not have permitted us to set up the service in the first place (as Investments Ltd should have known what it was) or Investments Ltd should not have stopped us from running it.”
In 2014, Investments Ltd, which was part of the Standard Financial Group alongside sister advice network Financial Ltd, escaped fines from the FCA after it failed to have proper controls in place over its appointed representatives.
By this point the company was already facing significant financial difficulties and began voluntary liquidation proceedings in October last year. Financial Ltd was taken over by Tavistock Investments early last year but in October the network’s new owner closed it down.
The liquidator for Investments Ltd declined to comment.
Martin Tilley, director of technical services at Dentons Pension Management, said investments held within a Sipp are usually individual and not part of the’s scheme constitution.
“I would think it difficult to argue that an investment held within a Sipp was part of the Sipp and therefore met the exemption mentioned,” he said, pointing out that a the Sipp could have been established without the investment.
katherine.denham@ft.com
